Good afternoon and welcome to our first quarter analysts' briefing. We would like to start out with our financial highlights. First, our core businesses continue to deliver broad-based growth. Secondly, our performance translates a return on equity of 14.45%, coming from an 11% level in the first quarter of 2022. Our balance sheet stays strong, with liquid asset ratio of 35%, enough to cover us for unforeseen funding needs. Our CET1 ratio further improves to 13.2%. This comes from a 12.8% level as of end of 2022. Asset quality has remained stable. Our NPL ratio has kept below 2%, while coverage has increased further to 170%. Moving on to our first quarter performance. We reported a net income of PHP 16.5 billion. That is a 41% increase compared to the same period last year. As mentioned earlier, translates to a return on equity of 14.45%.
Income, the main driver, we saw strong good performance in our net interest income, growing by 28%. Despite the fast increase in funding costs, our asset base has continued to reprice upwards, both on the loans and the securities side. The benefit of having a large CASA base is what has contributed to this 28% growth in net interest income. On the non-interest income side, we have seen fees sustained at the 20% level, coming from over 20% over the last two years. We attribute this strong growth to the broad market coverage that we have invested in over the years. Trading and FX is up by about PHP 300 million from the same period last year. This is just coming from basically flow-related business, and our treasury being able to take advantage of the volatility in the financial markets.
In terms of operating expenses, we saw a 17% rise compared to last year, and this is driven primarily by our volume-related expenses. As such, our pre-provision operating profit, again, grew by 33% compared to last year. It is a sustained positive operating jaws for us so far. Provisions were slightly lower compared to last year, about PHP 3.2 billion. Despite this slightly lower level, again, as mentioned earlier, our coverage ratio has increased to 170%. The net income result is PHP 16.5 billion. On the balance sheet side, gross loans grew by 8% as of the first quarter. We have seen sustained demand across the loan segments. We will show the split later on a succeeding slide. Our investment securities up 24%. Our treasury gradually taking advantage of the increase in interest rates to build up an accrual portfolio for us.
Currently, investment securities will be about 20% of our balance sheet. It has been growing over time, but again, it is not an overly large component of the balance sheet today, and nowhere near the SVB proportion. We have kept a healthy balance between loans and liquidity, so our liquid assets comprise 35% of our balance sheet. This is something that we are conscious of. We have been maintaining over 30% liquidity ratio over time, and it is really in recognition of the fact that we want to make sure that we have sufficient liquidity at all times. On the funding side, deposit growth at 14%. CASA slowing down to about 2%. This is a function of the higher interest rates today. Our clients are more conscious of the rate differential, and therefore there has been some shift from CASA to time deposits.
We expect that over time, as we grow the client base, as we grow more branches, we will see a steady improvement again in our overall CASA deposits. Capital up 11% and book value per share up 10.5% to about almost PHP 89 per share as of the first quarter. In terms of the loan portfolio, 8% overall loan growth, but consumer growing at 16%, while both middle market and corporate are growing at 6%. On the deposits and funding, as mentioned earlier, our CASA growth was 2% year-on-year. Cost of deposits just slightly above 1%, but our CASA ratio at 76%, I think is still among the highest in the industry. In terms of branches, we've opened 18 in the first quarter and all of them are at the BDO Network Bank platform.
Currently we have 1,668 branches, of which about 1,200 are commercial bank and the rest are BDO Network. Trends. In terms of NIMs, compared to last year, our 4.14% full year average is compared to the 4.58% as of the first quarter. As mentioned earlier also, on a sequential basis, our margins are up 21 basis points compared to the fourth quarter of last year. Compared to the first quarter of last year, the increase is about 55 basis points on a year-on-year basis for our margins. Fee income, that's mentioned earlier, we're seeing sustained growth in the 20% levels. Again, it reflects the strong cross-selling efforts of our branches in our marketing units. Insurance premiums, it's a negative 1% year-on-year performance. If we look at the bullet point on the right, traditional protection insurance was actually up 24%.
The flat performance in overall premiums was a result more of the unit-linked investment products. As you may be aware, our focus in life insurance is on the traditional protection, and that has maintained more or less its over 20% growth still into the first quarter. For the securities book, about two-thirds of our book is in the hold-to-collect category. Again, the gradual build-up in our portfolio is really in anticipation of better accrual income in the future. The duration has been maintained at under five years. Also, again, as a percentage of the balance sheet, we're about 20% currently. Yeah, not extremely high as a proportion of the total assets of the bank. Cost-income ratio, steady at around the 60% level. The cost growth of 17% was contributed mainly from volume-related expenses.
The rest of the cost growth contributed by branch expansion, inflation, and IT-related spending, which would be more or less in the low double-digit levels. For asset quality, steady NPL ratio, just a slight uptick compared to year-end, but coverage again, still on the uptrend at 170%. In terms of profitability, again, we're on track to achieving mid-teens ROEs. Compared to last year, 13% average, we're now at 14.45%. We believe we still have a long ramp for profitability. We have not yet seen the full transmission of the policy rate hikes of the BSP. We have not yet felt the lifting or the increase in the cap on credit cards on our margins. If the BSP continues or does implement the cut in reserve requirements, then that proves to be another tailwind for us in terms of higher NIMs and higher ROEs.
From a capital perspective, as mentioned earlier, our CET1 ratio now at 13.2 at the parent level from 12.8 as of year-end. Given this level of operations, and despite the higher dividends that we're paying out, we are still capital accretive. In terms of the increase in the cash dividends, so from a regular and a special payout in 2022 of PHP2.20, we're now looking at PHP3 for the full year of 2023 as a regular payout. For our macro outlook, we saw GDP growth last year outperforming the government's estimate, and that was on the back of private consumption spending, which showed a very strong rebound in the second half of last year. For this year, I think the government is looking at a 6%-7% GDP growth. Internally, we're looking at about 5.8%, just slightly under the government's estimate.
We think that, again, the main driver for this will still be consumption spending. A potential lift could come from an investment-led cycle, as and when the corporate sector finds it attractive enough to embark on their expansion plans. I think what they're just waiting for really is a clear direction or stability in terms of the direction of interest rates, inflation, and foreign exchange. Potential headwinds, again, if inflation remains elevated for a prolonged period of time, that means that interest rates would stay higher for longer, and that could ultimately impact on the growth prospects for Philippine GDP. Over the longer term, that could ultimately impact as well on the asset quality of banks. In terms of interest rates, so from the current 6.25%, if inflation continues to decelerate, I think the BSP is indicating that they're headed for a pause.
If inflation re-accelerates, then there might even be a possibility for one more rate cut from where we are today. The inflation target is 2%-4% for the BSP, but we think that the fourth quarter number may still be outside of this range. What are we watching out for? Again, local supply bottlenecks, which can contribute to prolonged inflation. We're on the lookout for a recovery in investment spending, and from the government side, policy execution as it relates to attracting FDIs and also in terms of getting private sector participation in PPPs. We're also watching out for potential collateral damage from the aggressive monetary policy tightening, as mentioned earlier. Some companies, after a prolonged period of high interest rates, may not be as resilient as expected.
In terms of our business outlook, again, with our loan growth expectations about 8%-10%, NIMs to be supported by asset growth and CASA growth. Fee income so far showing very good growth at the 20% levels. Asset quality stable with improving coverage. Despite the high interest rates, we're not seeing any red flags yet in terms of NPL formation. Lastly, on the digital initiative side, so we're gradually digitalizing more and more of our processes and products, which over time will contribute to better operating efficiency and higher returns for the bank.
This is Richard Tan. I'll be moderating the Q&A section. We have a question from AllianceBernstein, Trevor Kwong. Within consumer loan demand, what kind of products are seeing growth? How is home mortgage loan demand?
Yep. The fastest-growing segments in consumer are mortgages and credit cards in particular. There's also been a pickup in activity in the auto loans, although again, I think there's still a supply constraint that's limiting the ability of auto loans to recover in a faster manner.
Related question would be, which sectors did the NPL formation come from? The NPL formation.
Well, during the pandemic, it was primarily from our consumer portfolio. Of late, we've not seen any significant change in terms of NPL formation. There's been new NPL formation, still, I think, primarily coming from consumer in particular. Although, again, the NPL formation numbers are not, I think, big enough to indicate red flags for us.
Yes. Actually, if you look at the chart here, the NPL levels are steady. There's actually no material NPL formation. A related question from UBS, Ben Tan, again. Have you started seeing any stress on asset quality on any of your customers?
Not yet. It's actually looking good. If there's none, again, we'd like to thank you for attending our briefing this afternoon. If there's anything else we can help with, you know how to reach us. Thank you for attending.